Customer service is a dollar-and-cents issue for all businesses -- alienate your customers and watch the bottom line turn red. For Patricia Gallup, the 44-year-old chairwoman and chief executive officer of PC Connection Inc., it's a also matter of ethics.

Gallup, whose company is a pioneer in the direct marketing of computers to small businesses, just won the 1998 Ernst &Young "Entrepreneur of the Year Award for Principle-Centered Leadership."

She and her partner, David Hall (he's now vice-chairman), founded PC Connection with $8,000 in personal savings in 1982 at the beginning of the PC revolution. In what's typically a low-service business, where customers make big purchases sight unseen over the phone, Gallup went to some lengths to create trust. Representatives at the company's toll-free numbers are expected to educate callers in detail about computer systems. From early in its history, the company also took financial risks by not putting through credit-card sales until products were shipped, a practice it continues to this day, she says.

Gallup says treating customers and vendors ethically is key to her success. Today, the Merrimack (N.H.) company brings in annual revenue of more than $500 million from selling personal computers, software, and peripheral products. PC Connection has a customer base of 2 million people and 1,000 employees. The company went public in March, 1998. Gallup recently spoke with Business Week Online's Jeremy Quittner. Here is an edited transcript of their conversation:

Q: How specifically does your company act in a principled way that led to your getting this award from Ernst & Young?
A: One of our goals was to be a trusted and unbiased information source as well as a source for the product. If a customer is interested in a computer system, they can call us, and we find out what their needs are and step them through the process of really setting up a system. We have several layers of service: We have a support group within sales, but we also have a technical support group, depending on the depth of information that is needed.

Q: So I can spend five minutes with you or three hours?
A: It varies. There is no time limit.

Q: Did you see a need in the computer marketplace for expanded customer service?
A: When we started the business, direct companies did things quite differently. They reduced the cost of getting products to people by not offering a high level of service. At that time, many people were interested in buying a computer, but did not have any computer experience. The industry was brand new. The PC had just been released into the marketplace, and people were really just starting to use them in their businesses.

Q: You have a lot of competition for what you do. The emphasis with every computer company today is on trying to maintain good customer relationships and on customer service.
A: Over 65% of our customers are repeat buyers. We pioneered many of the customer-service programs that you probably take for granted.

Q: What are some of the things I might take for granted?
A: We didn't charge the credit card until we actually shipped the product. So we didn't take [customers'] money and use [it] for a month or two before we actually got the product to them, that was fairly early on.

We worked very closely with Northern Telecom and IBM to develop applications for caller ID technology. If the customer has ordered [a system] recently, we will know what system [that] customer has. And we will know if something is not going to be a good match for their system. When we started using [the ID technology], a number of people in the industry were using it but not admitting they were.... People had concerns about privacy. What we did was try to alleviate those fears: We would block it if they did not want it to be used. It was right in the advertising in the catalogs.

Another thing that differentiates us is our relationship with the vendors. When we started our business, we used to have a policy where we would pay them in one day. That was good for their business -- and ours. We were all fledgling companies at the time. It was the right thing to do. And it was also good for the business, because we were foremost in their minds when...there was constraint of the product in the channels. Sometimes, the vendors have had to make choices about who they were going to allocate products to.

Q: What are some of the major trends you are seeing with small businesses?
A: That market is growing so rapidly that there are too many of them to be serviced directly by the manufacturers. But [entrepreneurs] really want the convenience of a direct relationship. They also want a reliable and trusted information source for their computer needs. There is a lot of uncertainty in the market. The life cycle of a product is about three months, so these people are really concerned about obsolescence. And they want to be sure that they are buying the right products that will meet their needs long enough to get the return on their investment. The key reason this market is growing so quickly right now is that everyone is trying to be more efficient, and they are trying to automate as much as they can.

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